Using Price Image to Formulate Pricing Strategy

Price Image

Using Price Image to Formulate Pricing Strategy

Price Image is how shoppers perceive a store’s pricing relative to its competitors. It is not the same as Price Index. Many more things go into establishing price image, including promotion programs, elasticities, seasonality, price ending numbers, and the overall design of a retailer store.

Price Index vs. Price Image

Price optimization solutions that are available today are based on rules and price indices that exclude your desired price image. What is needed are psychological models that measure your consumers’ perception of your pricing AND predict the impact of price changes on that image.

At its core, Price Image takes customer excitement into account. Whereas Price Index relies on historical data and plotting points, Price Image is predictive and non-linear – making it much more useful in making strategic pricing decisions. It incorporates psychological elements, making it a consumer-specific metric.

A Nobel Prize-Winning Approach

The calculation of Price Image was inspired at Engage3 by Markowitz’s Efficient Frontier Theory. It’s a theory  that has been successfully used for decades in managing financial portfolios and is now applied to retail pricing.It enables retailers to strategically manage competitive price adjustments so they can balance their profit goals with a desired price image in the market.

Efficient Frontier

What to Look For in a Strategic Pricing Solution

Price Image takes psychological factors and applies them to pricing data. The resulting models can be used to predict future profitability and are not reliant on historical data. Below is a list of what to look for in a strategic pricing solution:

  • Integration with clean, comprehensive, and accurate competitive intelligence data
  • Statistically-driven performance reporting that separates real pricing impact from market level “noise”
  • Streamlined workflow for competitive price recommendations and approvals
  • Alerts for incomplete or outdated competitive data for review
  • A visual price modeling tool to define the impact of strategic pricing alternatives
  • Competitor activity and movement callouts on highly elastic products
  • Makes price recommendations based on your objectives for:
    • Price image
    • Profitability
  • Allows Merchants and Pricing Teams define their strategy and show the financial tradeoffs for different alternatives

 

The predictive model is especially valuable in forecasting sales, because Price Image allows a retailer to see how its customers are responding to different pricing strategies. Greater visibility translates to higher profit margins and happier customers!

Learn more about how the Efficient Frontier Theory is applied to retail pricing in this video.

 

 

 

 

Marielle Fong
Head of Marketing at Engage3